LG Electronics Overcomes COVID-19 Challenges to Deliver Strong Q2 Performance (Comprehensive)

[Asia Economy Reporters Changhwan Lee, Dongwoo Lee] LG Electronics achieved second-quarter earnings that exceeded market expectations despite the spread of the novel coronavirus disease (COVID-19).

On the 30th, LG Electronics announced that it recorded sales of 12.8338 trillion KRW and operating profit of 495.4 billion KRW in the second quarter. Compared to the previous year, sales decreased by 17.9% and operating profit by 24.1%.

Although earnings declined year-on-year due to the impact of COVID-19, the operating profit significantly exceeded the securities firms' consensus, which had anticipated operating profit in the low 400 billion KRW range.

By business division, the H&A Business Division, responsible for home appliances, posted sales of 5.16 trillion KRW, down 15.5% from 6.1 trillion KRW recorded in the same period last year. Operating profit during the same period decreased by about 12%, from 717.5 billion KRW to 628 billion KRW.

Despite declines in domestic and overseas sales and operating profit compared to the same period last year due to COVID-19, the company focused on premium products and continued cost efficiency measures such as cost reduction, resulting in record-high operating profit margins of 12.2% for the second quarter and 13.1% for the first half of the year. Furthermore, the operating profit margin for the first half has maintained double digits for four consecutive years since 2017.

With growing customer interest in health and hygiene, steam appliances such as stylers, dryers, and dishwashers among new home appliances have contributed to the division's performance.

The HE Business Division, responsible for TVs, recorded sales of 2.2567 trillion KRW, down 24.4% year-on-year, and operating profit of 112.8 billion KRW, down 26% year-on-year.

Sales decreased compared to the same period last year due to the closure of global retail stores and the postponement of global sports events, but operating profit and operating profit margin for the first half exceeded the previous year through efficient marketing expenditure and improved cost structure.

The MC Business Division, responsible for mobile, posted sales of 1.3087 trillion KRW, down 18.9% year-on-year, and an operating loss of 206.5 billion KRW, continuing its deficit. Sales increased by 31.1% quarter-on-quarter due to increased smartphone sales in key regions such as North America and Korea, and the scale of losses decreased compared to the same period last year and the previous quarter due to continuous structural improvements such as strengthened cost competitiveness.

The VS Business Division, in charge of automotive components, recorded sales of 912.2 billion KRW and an operating loss of 202.5 billion KRW. Operating losses continued as sales declined year-on-year due to factory shutdowns of automakers in North America and Europe and delays in mass production of new projects.

Although the company performed well despite difficulties in the second quarter, it expects such uncertainties to continue into the third quarter. A company official stated, "Global economic uncertainty is expected to persist due to the possibility of a resurgence of COVID-19 and concerns over the resumption of the US-China trade dispute," adding, "LG Electronics expects to achieve results at the level of the same period last year while discovering new opportunities amid the crisis, seeking change, and building growth momentum."

Looking at each business, the global home appliance market is expected to gradually improve despite uncertain business conditions. The H&A Business Division emphasized plans to increase sales by timely responding to market changes and secure profitability through cost structure improvements and optimization of resource input.

The TV market is also expected to recover global demand in the third quarter. The HE Business Division explained that it plans to recover profitability by focusing on premium products such as OLED TVs and NanoCell TVs, expanding online sales, and efficiently managing resources to secure sales opportunities.

The smartphone market is expected to see some demand recovery but intensified sales competition. The MC Business Division plans to increase overseas launches of the strategic smartphone ‘LG Velvet’ and expand sales of new budget models to create momentum for sales growth and continue efforts to improve profitability.

This content was produced with the assistance of AI translation services.